ALKEMNSEQ1 FY23August 5, 2022

Alkem Laboratories Limited

9,382words
166turns
15analyst exchanges
6executives
Management on call
Sandeep Singh
MANAGING DIRECTOR, ALKEM LABORATORIES
Rajesh Dubey
CHIEF FINANCIAL OFFICER, ALKEM LABORATORIES
Amit Ghare
PRESIDENT, INTERNATIONAL BUSINESS, ALKEM LABORATORIES
Yogesh Kaushal
PRESIDENT, CHRONIC DIVISION, ALKEM LABORATORIES
Amit Khandelia
AVP FINANCE, ALKEM LABORATORIES
Tushar Manudhane
MOTILAL OSWAL FINANCIAL SERVICES LIMITED ALKEM
Key numbers — 40 extracted
5.7%
nal and financial highlights of the quarter. Total operating revenues for the quarter declined by 5.7% year-on- year. EBITDA margin coming in at 7.9% and net profit after tax at 128 crores. We continue
7.9%
otal operating revenues for the quarter declined by 5.7% year-on- year. EBITDA margin coming in at 7.9% and net profit after tax at 128 crores. We continue to maintain strong net cash position of 950 c
128 crore
uarter declined by 5.7% year-on- year. EBITDA margin coming in at 7.9% and net profit after tax at 128 crores. We continue to maintain strong net cash position of 950 crores. Talking about our India busin
950 crore
7.9% and net profit after tax at 128 crores. We continue to maintain strong net cash position of 950 crores. Talking about our India business, which declined 6.7% year-on-year during the quarter, this was
6.7%
maintain strong net cash position of 950 crores. Talking about our India business, which declined 6.7% year-on-year during the quarter, this was due to huge base effect of last year. Adjusted for COVI
13.4%
on from new product introductions and price improvements. Our CAGR over the last three years is 13.4% for domestic business. We continued to outperform in the domestic market and as per secondary sal
1.8%
ondary sales data by IQVIA, the Company sales remained flat year-on-year compared to a decline of 1.8% for the Indian pharma market. This ALKEM outperformance is driven by a leader
2.7%
rma therapy. Now coming to international business U.S. Business reported a sequential growth of 2.7% with year-on-year decline of 7.9%. The performance in U.S. market continues to be impacted by a h
9.6%
tative approval. Apart from U. S., other international markets delivered a year-on-year growth of 9.6% with good all-round performance from the Australian market. Coming to our progress in the Biosimi
rs,
als in the CDMO space with couple of international companies and few Indian players. In coming years, our Biosimilar franchises will be one of the future growth engine for Alkem. Coming to regulator
100 crore
he other expenses. What is driving the other expenses on sequential basis? I think it is by about 100 crore. Sandeep Singh: See, you are asking from sequential quarter? Kunal Dhamesha: Yes, sequentia
24%
Yes, sequential perspective. Sandeep Singh: So, generally, our other expense is around 23 to 24% and this time it is higher and in fact, it is somewhere close to 29%. And mainly it is on account
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Guidance — 20 items
Amit Khandelia
opening
“To discuss the business performance and outlook going forward, we have on this call the senior management team of Alkem.”
Amit Khandelia
opening
“Before I proceed with this call, I would like to remind everyone that this call is being recorded and the call transcript will be made available on our website as well.”
Amit Khandelia
opening
“Sandeep Singh to present the key highlights of the quarter gone by and strategy going forward.”
Sandeep Singh
opening
“Our CAGR over the last three years is 13.4% for domestic business.”
Sandeep Singh
opening
“We expect to add a few more products to our basket in the financial year which makes our Biosimilar franchisee very promising in the domestic market.”
Sandeep Singh
opening
“In coming years, our Biosimilar franchises will be one of the future growth engine for Alkem.”
Sandeep Singh
opening
“We have already replied to the USFDA with corrective and preventive plan to resolve these observations.”
Kunal Randeria
qa
“Sandeep, you did mention that you are investing in biosimilars and that's going to be one of the growth engines going forward.”
Kunal Randeria
qa
“And when do you expect to have, let's say, you know, portfolio of six to eight products starting to contribute meaningfully?”
Kunal Randeria
qa
“So, in three to four years maybe you can expect four, five, six, five, seven percent of your top line or something coming from biosimilars?”
Risks & concerns — 15 flagged
We continued to outperform in the domestic market and as per secondary sales data by IQVIA, the Company sales remained flat year-on-year compared to a decline of 1.8% for the Indian pharma market.
— Sandeep Singh
Business reported a sequential growth of 2.7% with year-on-year decline of 7.9%.
— Sandeep Singh
Our margin for the quarter was impacted by headwind from spike in material cost, higher marketing expense, and distribution expense and the price erosion in U.
— Sandeep Singh
But you know, considering that 7% year-on-your decline in the revenues, would it be fair to assume that all your verticals decline and your branded acute, branded chronic or even the trade generics decline or did one or two really, you know, actually grow over last year?
— Kunal Randeria
If you can give some more color, any specific, you know, raw material that you're facing pressure?
— Saion Mukherjee
So, impact of material cost is around 2.5%.
— Rajesh Dubey
Of course, it is going to soften going forward.
— Rajesh Dubey
Nithya Balasubramanian: Does that concern you?
— Sandeep Singh
So, I think, see, it does not concern us too much.
— Sandeep Singh
But do you think given the competitive scenario in India and the investment that the business requires, incrementally, it's getting difficult for us to improve margins?
— Neha Manpuria
You are talking about year-on-year 20% decline in sales?
— Saion Mukherjee
Yes, I'm talking year-on-year 20% price decline for our portfolio.
— Amit Ghare
We have price decline on legacy business, on existing business.
— Sandeep Singh
Actually, impact of that, it has not come fully in this quarter, because we had some extra inventory of earlier manufactured or earlier batches.
— Rajesh Dubey
I am also aware that chronic is something that that can add to the PCPM, but at the same time, there would be some concern that's happening on the acute side.
— Nikhil Mathur
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Q&A — 15 exchanges
Q
First one on the U.S. How many products are we planning to launch in the U.S. for FY23? And any meaningful product we would be aware of for FY23-24?
Sandeep Singh
We are expecting to launch about between eight to ten products, probably ten during the fiscal year and meaningful, you know, we don't want to take a shot right now in terms of answering that question. But there are some shared exclusivities that we have already launched and we are looking forward to a few others as well. Time will tell how successful we are in those. And second question is on the other expenses. What is driving the other expenses on sequential basis? I think it is by about 100 crore. See, you are asking from sequential quarter? Yes, sequential perspective. So, generally, our
Q
Sandeep, you did mention that you are investing in biosimilars and that's going to be one of the growth engines going forward. So, maybe just a couple of questions around that, you know. So, if you can share the kind of product that you're targeting, has the investments started and hitting that P&L already? And when do you expect to have, let's say, you know, portfolio of six to eight products starting to contribute meaningfully?
Sandeep Singh
So, your question is, is that expense hitting the P&L? Yes, Sandeep. Actually, there are two or three questions around that. So, yes, one of it was this. So, I think Mr. Dubey is in a better position, but yes, we have already completely expensed our R&D from the very beginning. So, it's hitting our P&L, obviously, and it's hitting it for the last many years, not for the first time. So, yes, revenues have just started as I mentioned, you know, very recently and as I mentioned in my opening commentary, we have launched three products. Now when you say meaningful, I think, meaningful is very subj
Q
Sir, can you take us through the, you know, how the gross margin is shaping up? We have a low gross margin this quarter. If you can give some more color, any specific, you know, raw material that you're facing pressure? And how are the, you know, the raw material prices trending? And therefore, how should we think about gross margins going forward?
Rajesh Dubey
We can see our gross margin from 60% coming down to 57.5%. Basically, yes, you rightly mentioned also, material cost it has impacted. So, impact of material cost is around 2.5%. Obviously, expensive raw material will be purchased and is consumed in this period. So, that is one of the reason. Second, you ask how raw material prices now it is behaving. So, yes, it has started softening, but still I think it has not come back to its original position. So, it is in between kind of, but definitely, going forward, we'll start getting benefit of this raw material cost. Of course, it is going to softe
Q
So, sir, I went through your annual report and I was just looking at this one-line item called sale of services in the revenue. So, that has increased from about 7 crores in FY20 to 17 crores in FY21 and it's around 58 crores in FY22. So, what is this exactly pertaining to? So, I was saying that this line-item sale of services in revenue that has gone up from 7 crores in FY20 to 58 crores in FY22.
Sandeep Singh
That is CDMO. That is contract services maybe. So, that has scaled up pretty well and so I was just curious to know could this be like a 100, 200 crore kind of a line item going forward? Since it has scaled up pretty, it's still a very smart portion of our revenue, but scaled up pretty well. So, I mean, yes, we want to ramp it up, but we really don't know, I mean, whether it can be done in the next one or two years. We're kind of seeing how the business rounds up.
Q
I just had the one question on trade generics. Is there any update at all or any more visibility you have on the trades margin cap that the government keeps talking about time and again? So, is there any update? Have you heard anything new from the government on trade margin cap? Any plans of implementing it? Any timeline? Anything you might have picked up in recent times?
Sandeep Singh
No, we have picked up everything which everyone picks up from the media. We don't know. Nithya Balasubramanian: Does that concern you? Is that a real threat? How do you think about it? So, I think, see, it does not concern us too much. Of course, it would be a disruption because those rules would apply to everyone. So, nobody's going get any advantage or disadvantage and we being leaders in it will continue to grow and we will continue to grow market share. I think the new players would be specifically more impacted and so it doesn't worry too much. And anyway, we don't worry about things not
Q
Sandeep, if I were to look at your cost numbers in the quarter, there's been an increase in employee cost and in your SG&A even adjusting for all the one-offs. I think, what you mentioned is because of sales and promotion. Now, you know, if I were to look at the last data that is available for Alkem, our margins have been in the 15 to 17% range, and we've been trying to sort of, you know, improve it to 18 plus for some time now. But do you think given the competitive scenario in India and the investment that the business requires, incrementally, it's getting difficult for us to improve margins
Sandeep Singh
I think, this year is a anomaly. So, you know, this year, of course, will not hit that. But going forward, we will, because we understand the cost structures what we need to take care of and we are looking at the expenses very carefully. On international business side, we also have, you know, very clear understanding of where we need to cut costs, and that's going to take some time. So, next year we think we could implement it. Also please, you know, understand that chronic business continues to grow very well. Operating leverage would really kick in. We have seen the growth we have in anti-di
Q
Sir, you have mentioned about two deals of CDMO. So, can you make us understand what which therapy segment and what are the products you are focusing?
Sandeep Singh
So, these are lot of things confidential. So, I will not disclose any geographies or the company name. So, these are for clinical trials. So, they are in early stage, you know, for clinical trial supply. They could be in the chronic space and what therapy areas and all that stuff is for it could be onco. It could be osteo. So, what kind of competition is there in that like the India space for this CDMO? So, like you might have spent a lot for this for marketing. So, how long can we expect to--? No, we have spent nothing on marketing. So, this is not a marketing game. It's a service industry. Y
Q
Sir, my question is on the US business. So, first question is the US sales has been stable despite price erosion. So, any specific reason to highlight on this effect? And second question is US sales growth, what is the growth in the constant currency basis?
Amit Ghare
For the first question is no, we have degrown compared to last year year-on-year. We have not grown and we are not steady. Sequentially, yes, we have grown. The price erosion has been one of the factors which negatively affected. Volume has been steady and of course, new products contributed positively, but they could not offset the loss in price essentially. Sir, sales growth in the constant currency basis? So, what I reported was in dollar terms. So, in rupee terms, obviously, you have seen what results are now start. And sir, it's the stable part I was like looking on to the sequential numb
Q
Sandeep, sir, from a marketing and sales driven organization to manufacturing and now CDMO and biosimilars, the journey in the last four, five years for Alkem has been quite revolutionary ALKEM in that sense. Can you talk us through, so these two businesses, which is your India business, which is more branding, selling, marketing and then the second part of your business, which is manufacturing, contract research, contract development, capital intensity being high? Which direction is Alkem tilting to? And why are we diversifying away from our core competency of marketing, branding and selling?
Sandeep Singh
So, first of all, let me start with the latter part. We are not tilting or diversifying. I mean, we are diversifying, but we are not letting go off core. I would put the question to you. Do you think we are letting go off core? Do you see us domestic sales lack? I would say, no. No, that's not what I meant. No, what I meant is we have not let go off core. Point number one. See, understand that is our kind of core and it's critical. So, that remains and progression cannot at all think of letting go off, you know, from the ball on domestic market. Now see CDMO is something which we discussed, bu
Q
My question is on the profitability of the domestic business from a slightly longer-term horizon. I'm not looking for answers, numbers here. I very well understand that there could be some gross margin reversal in the near term because of raw material price cooling. But if I look at the OPEX ALKEM below gross profit, Alkem works with enhanced field force of more than 10,000. Or if I remember correctly from previous Con Calls, 20, 25% return that the company used to indicate. With that kind of return, is it possible to increase the PCPM structurally from where the company is today? I am also aw
Yogesh Kaushal
I'll answer your first, because you have two questions actually. You ask about increasing productivity, and then you ask about the OPEX on current 10,000 field force, and then how do we address that, correct? So, number one is PCPM obviously, when we intend to grow at around 10, 11% on a productivity of around 6 lakhs, which usually we are improving our productivity on acute front. Yes, our chronic productivity is at a mid-level, so around 3.5 to 3.7 where there we take little aggressive growth around 23 to 24%. So, our acute therapy continue to outperform the market and thereby increasing the
Q
My question is on domestic trade generic industry. So, if you can talk about how big trade generic industry is? What has been your market share movement for the last four, five years? Because last couple of years we have been done very good business. So, if you can comment on the market share and a little bit on the futuristic how we should look at trade generic industry growth rate in India?
Sandeep Singh
So, a lot of questions there. I'll try to answer them. Question on trade generics, we cannot really say that because, you know, there is no data like you have for prescription business. But I can tell you that we are either number one or number two in trade generics. That's point number one. So, we are very close number one or maybe a number one. And you know, trade generics is really growing now. It's outperforming the market to a large extent. It's also mentioned in some of the questions we had earlier that a lot of other companies are now entering this. So, I think you have got tailwind, th
Q
I have three questions and the first one is what has to happen for the price erosion in the US to reduce? That is one. Two, what kind of ROC do you enjoy in the U.S. business versus the trade generics and branded generics?
Sandeep Singh
There's a lot of echo over there. So, the first question is what is to happen for the price erosion in the US to reduce? One, and the second question is, what kind of ROC do we enjoy in the U.S. business versus the trade generics and branded generals? And the final question is can you throw some light on the working capital cycle for this quarter and the inventory days as well? Price erosion I said it was 20% for this quarter. It was actually 19% and 1% was volume reduction. Total 20%. No, my question was what has to happen for this price erosion to reduce? I can't really tell you. One of the
Q
Just a couple of clarifications because I got disconnected in between. So, on your margin guidance you know, if you just clarify both on the gross and the EBITDA margin line. Did you mention that on EBITDA margin, you expect to be north of 18% from next fiscal, but this fiscal it could be a bit short of that number? Is that what you indicated? ALKEM
Sandeep Singh
Yes, absolutely. And on the gross margin line as well, you know, if you could just give us a general sense of, you know, how margins could progress over the next two to three years, that would be useful. We have given guidance of 59% on gross margin front and yes, obviously, first quarter it is not there. Going forward, we will try to improve, but I think in the immediate future, we are going to remain somewhere in 59, 60% kind of gross margin. And just one last question. Can you quantify the expenses you are incurring on the biosimilar biologic side currently? R&D, any other expenses all put
Q
Just couple of basic questions. One, what would be your working capital cycle for the branded India business? Just a ballpark number.
Rajesh Dubey
So, for ethical business, our working capital days is, it will be somewhere close to 55, 58 days. And would it be fair to say that the trade generic would be slightly higher than this? Yes. And secondly, out of our 3400 crores gross block, can you just give me a ballpark number of what would be the, you know, gross block which is targeting the US market or you know? Actually, I think readily I'm not having this figure, but generally, we never share our fixed asset utilization on respective businesses, but Amit, he will be talking to you separately and try to provide some kind of. Amit Khandeli
Q
Thank you everyone for joining the call. If any of your questions are unanswered, you can get in touch with me. Thank you and have a great weekend.
Management
Speaking time
Sandeep Singh
47
Moderator
17
Saion Mukherjee
14
Rajesh Dubey
13
Amit Ghare
13
Kunal Dhamesha
11
Aditya Khemka
9
Yogesh Kaushal
6
Kunal Randeria
5
Sumit Gupta
5
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Opening remarks
Tushar Manudhane
Welcome to 1Q FY23 Earnings Call of Alkem Laboratories. From the management side, we have Mr. Sandeep Singh - Managing Director; Mr. Rajesh Dubey - Chief Financial Officer; Mr. Amit Ghare - President, International Business; Mr. Yogesh Kaushal - President, Chronic Division and Amit Khandelia – AVP Finance. Over to you, Amit, for opening remarks.
Amit Khandelia
Thank you, Tushar. Good evening everyone and thank you for joining today for Alkem Laboratories Q1 FY23 Earnings Call. Earlier during the day, we have released our financial result and investor presentation and the same are also posted on our website. Hope you have had a chance to look at it. To discuss the business performance and outlook going forward, we have on this call the senior management team of Alkem. Before I proceed with this call, I would like to remind everyone that this call is being recorded and the call transcript will be made available on our website as well. I would also like to add that today's discussion may include forward-looking statements and the same must be viewed in conjunction with the risks that our business faces. After the end of this call, if any of your queries remain unanswered, please feel free to get in touch with me. With this, I would like to hand over the call to Mr. Sandeep Singh to present the key highlights of the quarter gone by and strategy
Sandeep Singh
Thank you, Amit. Good evening to all of you and thank you for joining us today for our Quarter 1 FY23 Earnings Call. I would briefly take you through the key operational and financial highlights of the quarter. Total operating revenues for the quarter declined by 5.7% year-on- year. EBITDA margin coming in at 7.9% and net profit after tax at 128 crores. We continue to maintain strong net cash position of 950 crores. Talking about our India business, which declined 6.7% year-on-year during the quarter, this was due to huge base effect of last year. Adjusted for COVID base impact, the company has delivered reasonably good performance in domestic sales led by contribution from new product introductions and price improvements. Our CAGR over the last three years is 13.4% for domestic business. We continued to outperform in the domestic market and as per secondary sales data by IQVIA, the Company sales remained flat year-on-year compared to a decline of 1.8% for the Indian pharma market. Thi
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